Housing Slowdown Puts Damper on Rent-Backed Bonds

Sales of bonds backed by debt associated with single-family rental housing has soared over the last two years, as rents climbed across the country. Now, with the housing market contracting, issuance is set to cool from record levels.

BofA Securities Inc. predicts that single-family rental (SFR) securitizations -- which repackage a single loan tied to multiple properties -- will fall to just $2 billion for the rest of 2022 as Federal Reserve rate hikes send shivers across the industry.

SFRs were first launched in 2013 and issuance had been slow to pick up until last year’s credit boom, which saw a record $18.4 billion in sales according to Kroll Bond Rating Agency. Issuance this year seems to be following a similar trajectory, having reached $12 billion as of Aug. 22 compared to $9.1 billion at the same point last year, a KBRA report shows.

But the ratings agency sees darker times ahead for this corner of the credit market.

“The sentiment has started to change from the last two years, as home price growth is slowing down, and some areas are even experiencing price declines,” said Akshay Maheshwari, senior director in commercial mortgage-backed securities at KBRA, in an interview. “We expect issuance to continue, but it may be slower than the first half of the year.”